ICAN Files Petition, Pressing SEC to Review Accredited Investor Definition
The Investor Choice Advocates Network, or ICAN – a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for small investors and entrepreneurs, filed a petition with the U.S. Court of Appeals for the Ninth Circuit last week, requesting the U.S. Securities and Exchange Commission review its prior request for rulemaking around the current “accredited investor” definition.
In a blog from its website, attributed to Nick Morgan, founder and president of ICAN said the action followed “two years of attempting to work with the SEC to modernize investment rules, and the agency refusing to engage.” As a significant step in the nonprofit’s effort to expand access to capital markets, ICAN said its petition formally challenges the accredited investor rule “that blocks most Americans from private market investments simply because they don’t meet arbitrary wealth and income thresholds.”
As previously discussed by The DI Wire, the accredited investor definition is a cornerstone of U.S. securities regulation, playing a pivotal role in who can participate in certain investment opportunities. The SEC has been tasked with reviewing this definition at least every four years to ensure it aligns with investor protection and the broader economic landscape.
The guidelines, pursuant to Rule 501 of Regulation D of the Securities Act of 1933, have required an individual to meet at least one of two criteria:
- A net worth exceeding $1 million, excluding the value of their primary residence, either individually or jointly with a spouse; or
- An annual income exceeding $200,000 in each of the two most recent years (or joint income with a spouse exceeding $300,000) and a reasonable expectation of maintaining the same income level in the current year.
The SEC has made several amendments to the definition over the years, most recently in August 2020, expanding the categories of who qualifies. These changes included recognizing:
- Individuals who have certain professional certifications and designations;
- Individuals who are “knowledgeable employees” of private funds, but only in regard to that specific fund;
- SEC-registered and state-registered investment advisers;
- Individuals who are “family clients” associated with a “family office,” and who meet specific requirements; and
- Directors, executive officers, and general partners of the issuer or of a general partner of the issuer.
ICAN advocates for replacing the net worth and income requirements of Rule 501(a) with non-financial metrics, which would open the investment industry to people who are now underrepresented by broadening the definition of “accredited investor,” while maintaining appropriate safeguards.
Such action would have a dramatic economic effect, ICAN said. The organization said the “expansion and diversification of the investor base through the reduction of barriers would lead to improved products, higher employment, more resilient businesses, and enhanced confidence in capital markets.”
ICAN is seeking an order from the court requiring the SEC to act on the petition within 30 days. In the meantime, Morgan said ICAN is hearing from other organizations and industry leaders who plan to file supporting briefs backing its position.
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